2018 (10) TMI 2040 - HC - Indian Laws

Issuance of notice under Section 37(1) of the Himachal Pradesh Co-operative Societies Act, 1968 requires consultation as per Section 37(5) or not - Malice in law - provisions of Section 37(1-A) are independent of and not subject to Section 37(1) or not - Registrar can take action for suspension and management of the Society after issuing a show cause notice or not - contradiction of Supreme Court's mandate in State of Madhya Pradesh v. Sanjay Nagayach others 2015 (8) TMI 1109 - SUPREME COURT or not - inquiries and powers under Sections 37 and 67 of the Act are distinct and independent or not - suspension order was based on no material and without application of mind - respondents' actions were malafide and ultra vires the Statute or not. Issuance of SCN - whether prior to the issuance of notice, provisions of Sub-Section (5) of Section 37 of the Act would come into play or not - HELD THAT - The answer is in the negative for the following reasons Sub-Section (5) does not refer to Sub-Section (1-A). It only refers to Sub-section (1) and expression any action stipulated therein necessarily has to be in relation to the consequential action of removal of the Committee, which is after the issuance of show cause notice calling upon the noticee to show cause and state its objection, for after all, the Registrar may after affording opportunity, himself come to the conclusion that no action for removal is required to be taken in view of justification, plausible in nature, if any, furnished by the noticee. For formation of opinion in the issuance of notice no prior consultation is required. Otherwise for everything and anything he would have to rush to the bank seeking its opinion, which would not only stifle the power to be exercised by the Registrar but make his authority otiose. Removal of the Committee and the resultant consequential actions are definitely of serious nature. It is in this backdrop, safe guard of Sub-section (5) is prescribed in the Statute. The safe guard is also stipulated considering the disqualification which a Member entails by virtue of Sub-Section (6) of the very same Section, in the event of his removal. In Macquarie Bank Limited v. Shilpi Cable Technologies Limited, 2017 (12) TMI 850 - SUPREME COURT , Hon'ble Supreme Court has held that the task of a Judge, when he looks at the literal language of the statute as well as the object and purpose of the statute, is not to interpret the provision as he likes but to interpret the provision keeping in mind the Parliament's language and the object that Parliament had in mind. Sub-Section (1) of Section 37 provides for (a) formation of an opinion in the issuance of show cause notice; and (b) passing a written order in removing the Committee. It is only when the Registrar deems it appropriate to remove the Committee, in our considered view, he has to necessarily consult the Financial Institution to which a Cooperative Society is indebted. In any event, no prior consultation stipulated under Sub-Section (5) is required for initiating action under Sub-Section (1-A) of such Section. Whether Sub-Section (1-A) is subject to completion of all the actions stipulated under Sub-Section (1) or not? - Whether the Registrar can take action for suspension and management of the Society after issuing a show cause notice? - HELD THAT - The language of Sub-Section (1-A) is plain, simple and unambiguously clear. It uses the expression while proceeding to take action under Sub-Section (1) the Registrar is of the opinion that suspension of the Committee or any Member is necessary and in the interest of Society, he may take action of suspending the Committee or such Member and thereafter make proper arrangements for the management and affairs of the Society till the proceedings are completed . So what is important is contemplation of action under Sub-Section (1) and the Registrar deciding to proceed in that direction, a Committee/any Member can be suspended where it is deemed necessary in the interest of the Society to do so, till such time proceedings under Sub-section (1) are completed. The word suspension cannot be construed to mean supersession which in fact is replacement. Suspension is a stop gap temporary measure. There are no reason as to why pending such inquiry, petitioner places the entire material before the authority; argues his case; persuades and convinces the said authority in dropping the proceedings so initiated. This in fact, would only help the petitioner, for all facts can best be understood, appreciated and applied for taking decision on the action so initiated. Whether the action of the respondents contradicts the Supreme Court's mandate in State of Madhya Pradesh v. Sanjay Nagayach others 2015 (8) TMI 1109 - SUPREME COURT ? - HELD THAT - Much emphasis is laid on Sanjay Nagayach. Having carefully gone through the said report, we are not in agreement with the submissions made by the learned counsel for the petitioner, for the ratio of law laid down therein is not only distinguishable but totally inapplicable to the instant facts. There the Court was dealing with a case where the alleged acts of malfeasance and misfeasance were not that of the persons in control of the affairs, but their predecessor-in-interest. Also for a period of 2 1/2 years, no action on the show cause notice was taken and suddenly, one fine day, without consultation of the concerned financial institution, the appropriate authority superseded the Board by appointing an Administrator. It is in this backdrop that the order of the authority was found to be ultra vires the provisions of the Statute, for there was no consultation prior to supersession which is not so done in the instant case. Hence the said decision has no bearing to the instant facts and the impugned action cannot be found to be contrary to the ratio of law laid down therein. Whether the provisions of Section 37 are subject to Section 67 or not? - HELD THAT - Section 67 of the Act confers upon the Registrar the duty, either on his own motion or on an application, as envisaged in Sub-section (2) thereof to hold an inquiry. Now incidentally, language of the said Section is unambiguous that if an application, as envisaged in Sub-section (2) thereof is received by the Registrar, then it is mandatory for him to hold an inquiry. This is unlike the provisions of Sub-section (1) thereof, wherein, the Registrar may of his own motion hold an inquiry. Sub-section (4) thereof further envisages that where an inquiry is made under Section 67, then the Registrar shall communicate the result of the same to the society or the cooperative society, if any, to which the said society is affiliated and to the persons or authority, if any, at whose instance the enquiry is made. Thus, it is apparent from the perusal of this Sub-section that Registrar, Cooperative Societies has no role more than holding of an inquiry and thereafter submitting the result of the same in the mode and manner prescribed under Sub-section (4). Neither this Section nor Chapter-VIII of the Act envisages any action on the said inquiry report by the Registrar - Section 67 of the Act. Whereas Section 37 confers upon the Registrar an affirmative power of superseding the committee, Section 67 only confers upon the Registrar the duty to hold an inquiry and thereafter submit the report in the mode and manner, as envisaged in Subsection (4) thereof. The purpose of incorporating Section 37 in the Act is totally different from the intent behind Section 67. There is neither any conflict in the Scheme of the Statute nor it can be said that the powers and duties conferred upon the Registrar under Sections 37 and 67, respectively either overlap each other or outreach the intent of each other. Whether the suspension order was based on no material and without application of mind? - Whether the respondents' actions were malafide and ultra vires the Statute? - HELD THAT - The order of suspension cannot be said to have been passed without any material or application of mind. Significantly the action cannot be said to be malafide; ultra vires the Statute; and the principles of natural justice. The present petition, being devoid of any merit, is dismissed.

Summary

Issues Involved:

1. Whether the issuance of notice under Section 37(1) of the Himachal Pradesh Co-operative Societies Act, 1968 requires consultation as per Section 37(5)?
2. Whether the provisions of Section 37(1-A) are independent of and not subject to Section 37(1)?
3. Whether the Registrar can take action for suspension and management of the Society after issuing a show cause notice?
4. Whether the action of the respondents contradicts the Supreme Court's mandate in State of Madhya Pradesh v. Sanjay Nagayach & others?
5. Whether the inquiries and powers under Sections 37 and 67 of the Act are distinct and independent?
6. Whether the suspension order was based on no material and without application of mind?
7. Whether the respondents' actions were malafide and ultra vires the Statute?

Detailed Analysis:

1. Consultation Requirement under Section 37(1):
The court examined whether prior consultation with the financing institution was mandatory before issuing a notice under Section 37(1). It concluded that Sub-Section (5) of Section 37 refers only to actions following the issuance of a show cause notice, not the initial issuance itself. Therefore, prior consultation is not required before issuing the notice, as the Registrar's authority to issue such notices should not be stifled by needing to seek opinions for every action.

2. Independence of Section 37(1-A):
The court found that Section 37(1-A) allows the Registrar to suspend the Committee or any member during proceedings under Section 37(1) if deemed necessary for the Society's interest. This power is independent of the completion of actions under Section 37(1), and suspension is a temporary measure, not amounting to supersession.

3. Registrar's Authority Post-Notice:
The court affirmed that the Registrar could suspend the Committee and make arrangements for management pending proceedings. The suspension is a temporary measure, and the Registrar's actions were backed by statutory inspection reports and audit findings indicating serious irregularities, justifying the suspension.

4. Compliance with Supreme Court Mandate:
The court distinguished the current case from the Sanjay Nagayach decision, noting that the latter involved a lack of consultation and delayed action, which were not present in this case. The court found no violation of the Supreme Court's mandate, as the Registrar's actions were timely and based on substantial evidence.

5. Distinct Nature of Sections 37 and 67 Inquiries:
Sections 37 and 67 serve different purposes: Section 37 deals with supersession due to negligence or prejudicial acts, while Section 67 pertains to inquiries into the Society's constitution and financial condition. The court clarified that these sections operate in distinct spheres and do not overlap.

6. Material Basis for Suspension Order:
The court found that the suspension order was based on substantial material, including statutory reports and audit findings. The Registrar's decision was not arbitrary or without application of mind, as it was supported by documented irregularities and violations by the Board.

7. Allegations of Malafide and Ultra Vires Action:
The court rejected claims of malafide intent, noting no evidence of personal ill-will or political influence on the Registrar. The actions were not ultra vires, as they were within the statutory framework, and the Registrar acted within his duties without bias or improper motives.

In conclusion, the court dismissed the petition, finding no merit in the allegations against the Registrar's actions, which were deemed lawful and justified based on the evidence and statutory provisions.